In the commercial real estate industry, potential sellers of commercial real estate often avoid publicly advertising or listing their real estate, and potential sellers and buyers are often very cautious about selling or purchasing commercial real estate that has single or multiple existing tenants. Potential sellers often fear that existing tenants of affected properties will look to lease space elsewhere, and/or that potential tenants will avoid leasing space within the affected properties. Potential buyers, on the other hand, are typically reluctant to purchase property due to the risk of default of tenants leasing space within the property.
In addition, potential sellers typically prefer to not be “shopped” by competitors, or felt out by numerous developers and/or potential buyers. Further, potential sellers typically prefer to not be limited by listing agreements or agency relationships that bind the potential sellers to a single brokerage firm or an unnecessary agency liability for a specific duration. And as a result of potential sellers avoiding public advertising or listing of their properties, in various segments of commercial real estate, the demand of available potential buyers may significantly outnumber the supply of known, publicly available properties. However, this generally does not reflect the fact that the demand of available potential buyers significantly outnumbers the supply of properties available for purchase, only that a significant number of available properties may not be publicly available, and thus known to potential buyers.
In another facet of the commercial real estate industry, which is also typically applicable to the real estate industry in general, consider an institutional buyer of real state such as a pension fund manager who owns or otherwise controls two-hundred properties. Also consider that the manager desires to sell twenty of those properties and buy thirty new properties, such as by effectuating a tax deferred exchange under U.S. Internal Revenue Code section 1031 (often referred to as a Internal Revenue Service (IRS) 1031 tax deferred exchange). In such an instance, the manager may effectuate the tax deferred exchange in accordance with the following typical scenario. First, the manager contacts a number of prospective realtors in each of the plurality of cities within which the twenty properties to sell are located. The manager interviews the prospective realtors and selects at least two realtors in each city to submit marketing plans. After reviewing the marketing plans, the manager meets with the selected realtors in each city to negotiate listing fees and listing contracts proposed by the selected realtors. The manager then selects a realtor in each city and meets with the realtor to sign the listing contract and agree upon the frequency and method for any subsequent review and modification of the respective realtor's marketing plan. As will be appreciated, the manager is now between thirty and a hundred or more meetings and several weeks or months into the property sale portion of the exchange.
Twelve of the twenty properties go under contract to one or more buyers some months after those properties are listed for sale, and the manager now proceeds down a similar path for selecting and engaging one or more realtors to locate suitable properties to buy for the property purchase portion of the exchange. In the meantime, the manager searches for suitable properties on his/her own. In this regard, the manager's search includes sifting through a myriad of information that is often incomplete, incorrect or misrepresented, typically only netting ten suitable properties for every hundred properties researched. The manager selects a number of suitable properties for attempted purchase. In attempting to engage the suitable properties for purchase, however, the manager learns that a number of the properties have other potential buyers who are also attempting to engage those properties, often for the same reasons as the manager, further complicating their purchase. The net result of the steps taken by the manager is effectuation of a tax deferred exchange that requires an excessive amount of time and resources. Moreover, timing restrictions that may exist with respect to the property sale and property purchase portions of the exchange may increase stress, liability and the potential for litigation.